Notice2023-05687
Self-Regulatory Organizations; Nasdaq MRX, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend the Pricing Schedule at Options 7, Section 3 To Introduce a Growth Incentive
Primary source
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Published
March 21, 2023
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 88 Issue 54 (Tuesday, March 21, 2023)</title>
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[Federal Register Volume 88, Number 54 (Tuesday, March 21, 2023)]
[Notices]
[Pages 17068-17071]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-05687]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-97148; File No. SR-MRX-2023-07]
Self-Regulatory Organizations; Nasdaq MRX, LLC; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Amend the
Pricing Schedule at Options 7, Section 3 To Introduce a Growth
Incentive
March 15, 2023.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on March 1, 2023, Nasdaq MRX, LLC (``MRX'' or ``Exchange'') filed with
the Securities and Exchange Commission (``SEC'' or ``Commission'') the
proposed rule change as described in Items I, II, and III, below, which
Items have been prepared by the Exchange. The Commission is publishing
this notice to solicit comments on the proposed rule change from
interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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[[Page 17069]]
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend the Exchange's Pricing Schedule at
Options 7, Section 3 (Regular Order Fees and Rebates).
The text of the proposed rule change is available on the Exchange's
website at <a href="https://listingcenter.nasdaq.com/rulebook/mrx/rules">https://listingcenter.nasdaq.com/rulebook/mrx/rules</a>, at the
principal office of the Exchange, and at the Commission's Public
Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The purpose of the proposed rule change is to amend the Exchange's
Pricing Schedule at Options 7, Section 3 (Regular Order Fees and
Rebates).\3\
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\3\ The Exchange initially filed the proposed pricing changes on
January 3, 2023 (SR-MRX-2023-01) to adopt a Market Maker growth
incentive and to amend complex order fees. On January 17, 2023, the
Exchange withdrew that filing and submitted SR-MRX-2023-02. On
January 30, 2023, the Exchange withdrew that filing and submitted
separate filings for the Market Maker growth incentive and complex
order fees. SR-MRX-2023-04 replaced the Market Maker growth
incentive set forth in SR-MRX-2023-02. On March 1, 2023, the
Exchange withdrew SR-MRX-2023-04 and submitted this filing.
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Today, as set forth in Table 1 of Options 7, Section 3, the
Exchange assesses the following fees for regular orders in Penny
Symbols:
Penny Symbols
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Maker fee Tier Maker fee Tier Taker fee Tier Taker fee Tier
Market participant 1 2 1 2
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Market Maker.................................... $0.20 $0.10 $0.50 $0.50
Non-Nasdaq MRX Market Maker (FarMM)............. 0.47 0.47 0.50 0.50
Firm Proprietary/Broker-Dealer.................. 0.47 0.47 0.50 0.50
Professional Customer........................... 0.47 0.47 0.50 0.50
Priority Customer............................... 0.00 0.00 0.00 0.00
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The Exchange now proposes to introduce a growth incentive in new
note 6 that would allow Market Makers \4\ to reduce their maker fees
described above. The proposed growth incentive will be aimed at
rewarding new and existing Market Makers to grow the extent of their
liquidity adding activity in Penny Symbols on the Exchange over time.
Market Makers, including any new Market Makers, who did not have any
volume in the Market Maker Penny add liquidity segment for the month of
December 2022 (and therefore lack December 2022 baseline volume against
which to measure subsequent growth) would meet the growth requirement
through whatever volume of Market Maker add liquidity activity in Penny
Symbols during the first month of use.\5\
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\4\ The term ``Market Makers'' refers to ``Competitive Market
Makers'' and ``Primary Market Makers'' collectively. See Options 1,
Section 1(a)(21).
\5\ As discussed below, the Exchange will sunset this incentive
for new Market Makers on June 30, 2023 and will use this time period
to evaluate the proposed growth tier criteria to determine whether
the parameters are appropriately designed to incentivize Market
Makers in the intended manner. The Exchange intends to come in with
a future rule filing to adjust the growth tier parameters for new
Market Makers.
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Specifically, Market Makers may qualify for a reduction in the Tier
1 and Tier 2 Maker Fees described above if the Market Maker has
increased its volume which adds liquidity in Penny Symbols as a
percentage of Customer Total Consolidated Volume \6\ by at least 100%
over the Member's December 2022 Market Maker volume which adds
liquidity in Penny Symbols as a percentage of Customer Total
Consolidated Volume. Market Makers that qualify will have their Tier 1
Maker Fee reduced to $0.08 and their Tier 2 Maker Fee reduced to $0.04.
In doing so, the Exchange is proposing to reduce the Tier 1 and Tier 2
Maker Fees by 60% for qualifying Market Makers.
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\6\ ``Customer Total Consolidated Volume'' means the total
volume cleared at The Options Clearing Corporation in the Customer
range in equity and ETF options in that month. See Options 7,
Section 1(c).
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As noted above, Market Makers, including any new Market Makers, who
did not have any volume in the Market Maker Penny add liquidity segment
for the month of December 2022 would meet the growth requirement
through whatever volume of Market Maker add liquidity activity in Penny
Symbols during the first month of use. The Exchange therefore proposes
to also add that Market Makers with no volume in the Penny Symbol add
liquidity segment for the month of December 2022 may qualify for the
reduced Tier 1 and Tier 2 Maker Fees described above by having any new
volume considered as added volume. As such, new Market Makers that
qualify for the Tier 1 or Tier 2 Maker Fee in a given month will have
any new volume in the targeted segment qualify them for the proposed
reduced fees. The Exchange also proposes to offer this incentive from
January 3, 2023 until June 30, 2023 in order to encourage new Market
Makers to join MRX, and will use this time period to evaluate the
appropriate parameters going forward for market participants with no
December 2022 volume in the targeted segment.
As noted above, the Exchange intends for this proposal to reward
Market Makers that increase the extent to which they add Penny Symbol
liquidity to the Exchange over time and specifically, relative to a
recent benchmark month (December 2022). The Exchange believes that if
the proposed incentive is effective, any ensuing increase in added
liquidity in Penny Symbols will improve market quality, to the benefit
of all market participants.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\7\ in general, and furthers the objectives of Sections
6(b)(4) and 6(b)(5) of the Act,\8\ in particular, in that it provides
for the equitable allocation of
[[Page 17070]]
reasonable dues, fees, and other charges among members and issuers and
other persons using any facility, and is not designed to permit unfair
discrimination between customers, issuers, brokers, or dealers.
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\7\ 15 U.S.C. 78f(b).
\8\ 15 U.S.C. 78f(b)(4) and (5).
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The Exchange's proposed changes to its schedule of credits are
reasonable in several respects. As a threshold matter, the Exchange is
subject to significant competitive forces in the market for options
securities transaction services that constrain its pricing
determinations in that market. The fact that this market is competitive
has long been recognized by the courts. In NetCoalition v. Securities
and Exchange Commission, the D.C. Circuit stated as follows: ``[n]o one
disputes that competition for order flow is `fierce.' . . . As the SEC
explained, `[i]n the U.S. national market system, buyers and sellers of
securities, and the broker-dealers that act as their order-routing
agents, have a wide range of choices of where to route orders for
execution'; [and] `no exchange can afford to take its market share
percentages for granted' because `no exchange possesses a monopoly,
regulatory or otherwise, in the execution of order flow from broker
dealers' . . . .'' \9\
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\9\ NetCoalition v. SEC, 615 F.3d 525, 539 (D.C. Cir. 2010)
(quoting Securities Exchange Act Release No. 59039 (December 2,
2008), 73 FR 74770, 74782-83 (December 9, 2008) (SR-NYSEArca-2006-
21)).
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The Commission and the courts have repeatedly expressed their
preference for competition over regulatory intervention in determining
prices, products, and services in the securities markets. In Regulation
NMS, while adopting a series of steps to improve the current market
model, the Commission highlighted the importance of market forces in
determining prices and SRO revenues and, also, recognized that current
regulation of the market system ``has been remarkably successful in
promoting market competition in its broader forms that are most
important to investors and listed companies.'' \10\
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\10\ Securities Exchange Act Release No. 51808 (June 9, 2005),
70 FR 37496, 37499 (June 29, 2005) (``Regulation NMS Adopting
Release'').
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Numerous indicia demonstrate the competitive nature of this market.
For example, clear substitutes to the Exchange exist in the market for
options security transaction services. The Exchange is only one of
sixteen options exchanges to which market participants may direct their
order flow. Within this environment, market participants can freely and
often do shift their order flow among the Exchange and competing venues
in response to changes in their respective pricing schedules. As such,
the proposal represents a reasonable attempt by the Exchange to
increase its liquidity and market share relative to its competitors.
The Exchange believes that it is reasonable to establish a new
growth incentive that would provide Market Makers with the opportunity
to reduce their maker fees to $0.08 (Tier 1) and to $0.04 (Tier 2) if
they increase their Market Maker volume which adds liquidity in Penny
Symbols as a percentage of Customer Total Consolidated Volume by at
least 100% over their December 2022 Market Maker volume which adds
liquidity in Penny Symbols as a percentage of Customer Total
Consolidated Volume. The proposal is reasonable because it will provide
extra incentives to Market Makers to engage in substantial amounts of
liquidity adding activity in Penny Symbols on the Exchange, as well as
to grow substantially the extent to which they do so relative to a
recent benchmark month. The Exchange believes that if the proposed
incentive is effective, then any ensuing increase in liquidity adding
activity on the Exchange will improve the quality of the market
overall, to the benefit of all market participants. The Exchange also
believes that the proposed reduced fees are reasonable because the
Exchange is proposing to reduce the Tier 1 and Tier 2 maker fees by the
same percentage amount (i.e., 60%) such that the reduced fees are
commensurate with the base Tier 1 and Tier 2 maker fees that qualifying
Market Makers receive for adding Penny Symbol liquidity. The Exchange
similarly believes that it is reasonable to consider any new Penny add
liquidity volume for Market Makers with no such volume for the month of
December 2022 in order for those Market Makers to receive the proposed
discounts to their maker fees because this is designed to attract
additional Penny liquidity from new Market Makers to the Exchange
during a temporary period between January 3, 2023 and June 30, 2023. To
the extent this proposal attracts new Market Maker Penny add liquidity
volume to the Exchange, all market participants should benefit through
more trading opportunities and tighter spreads. As discussed above, the
Exchange intends for this incentive aimed at attracting new Market
Makers to sunset after June 30, 2023 and will use this time to evaluate
suitable growth tier parameters for such market participants with no
December 2022 volume in the targeted segment, after which it will come
in with a rule filing to adjust the growth incentive as appropriate.
The Exchange believes that the proposed growth incentive is
equitable and not unfairly discriminatory for the reasons that follow.
As a general matter, the Exchange believes that it is equitable and not
unfairly discriminatory to provide the proposed growth incentive to
only Market Makers because Market Makers have different requirements
and additional obligations to the Exchange that other market
participants do not (such as quoting requirements). As such, the
Exchange's proposal is designed to increase Market Maker participation
and reward Market Makers for the unique role they play in ensuring a
robust market. As discussed above, the proposal is designed to
encourage Market Makers to substantially add Penny Symbol liquidity to
the Exchange. To the extent the Exchange succeeds in increasing the
levels of liquidity and activity on the Exchange, the Exchange will
experience improvements in market quality, which stands to benefit all
market participants.
The Exchange believes that the proposed growth incentive is
equitable and not unfairly because as discussed above, the Exchange is
proposing to reduce the Tier 1 and Tier 2 maker fees by the same
percentage amount (i.e., 60%) such that the reduced fees are
commensurate with the base Tier 1 and Tier 2 maker fees that qualifying
Market Makers receive for adding Penny Symbol liquidity. Furthermore,
the Exchange believes that it is equitable and not unfairly
discriminatory to consider any new Penny add liquidity volume for
Market Makers with no such volume for the month of December 2022 in
order for those Market Makers to receive the proposed discounts to
their maker fees because this is designed to attract additional Penny
liquidity from new Market Makers to the Exchange. In turn, this
additional Penny liquidity should benefit all market participants
through increased liquidity and order interaction. Furthermore, the
proposed structure for new Market Makers with no December 2022 volume
in the targeted segment will be temporary and sunset on June 30, 2023,
after which the Exchange will come in with another rule filing to
adjust the parameters for such market participants, as appropriate. To
the extent the proposed maker fee attracts new Market Makers to the
Exchange during this time period, the Exchange believes that its
proposal will increase liquidity on MRX, which
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benefits all market participants by providing more trading
opportunities, tighter spreads, and increased order interaction.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act.
In terms of intra-market competition, the Exchange does not believe
that its proposals will place any category of market participant at a
competitive disadvantage. The Exchange believes that the proposed
Market Maker growth incentive should encourage the provision of
liquidity from both existing and new Market Makers that enhances the
quality of the Exchange's market and increases the number of trading
opportunities on the Exchange for all market participants who will be
able to compete for such opportunities.
In terms of inter-market competition, the Exchange notes that it
operates in a highly competitive market in which market participants
can readily favor competing venues if they deem fee levels at a
particular venue to be excessive, or rebate opportunities available at
other venues to be more favorable. In such an environment, the Exchange
must continually adjust its fees to remain competitive with other
options exchanges. Because competitors are free to modify their own
fees in response, and because market participants may readily adjust
their order routing practices, the Exchange believes that the degree to
which fee changes in this market may impose any burden on competition
is extremely limited.
As discussed above, the proposed growth incentive is pro-
competitive in that the Exchange intends for the changes to increase
liquidity addition and activity on the Exchange, thereby rendering the
Exchange a more attractive and vibrant venue to market participants.
In sum, if the changes proposed herein are unattractive to market
participants, it is likely that the Exchange will lose market share as
a result. Accordingly, the Exchange does not believe that the proposed
changes will impair the ability of members or competing order execution
venues to maintain their competitive standing in the financial markets.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were either solicited or received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become effective pursuant to Section
19(b)(3)(A)(ii) of the Act.\11\ At any time within 60 days of the
filing of the proposed rule change, the Commission summarily may
temporarily suspend such rule change if it appears to the Commission
that such action is: (i) necessary or appropriate in the public
interest; (ii) for the protection of investors; or (iii) otherwise in
furtherance of the purposes of the Act. If the Commission takes such
action, the Commission shall institute proceedings to determine whether
the proposed rule should be approved or disapproved.
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\11\ 15 U.S.C. 78s(b)(3)(A)(ii).
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
<bullet> Use the Commission's internet comment form (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#f280879e97df919d9f9f979c8681b2819791dc959d84"><span class="__cf_email__" data-cfemail="255750494008464a4848404b5156655640460b424a53">[email protected]</span></a>. Please include
File Number SR-MRX-2023-07 on the subject line.
Paper Comments
<bullet> Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-MRX-2023-07. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549, on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-MRX-2023-07 and should be submitted on
or before April 11, 2023.
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\12\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\12\
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-05687 Filed 3-20-23; 8:45 am]
BILLING CODE 8011-01-P
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